Former treasurer Peter Costello has defended the Future Fund's investment decisions during a sometimes feisty Senate estimates hearing in Canberra.

Mr Costello, who is the chairman of the fund, was questioned about why the fund continued to invest in fossil fuels given its decision to stop investing in tobacco companies.

Mr Costello said the fund concluded that no amount of tobacco was safe and its decision to divest those shares would not affect other investment decisions.

"I think it would be extraordinary if the government of Australia in its sovereign wealth fund said it was going to pull out of coal or gas or oil," he said.

"These are very, very important industries to Australia.

"It would be a very strange thing for a country like Australia, which exports coal and which exports gas, for its government to say we think these things are so filthy and so wrong that we won't even touch them on the stock market."

Mr Costello insisted the decision to stay out of tobacco investments should not lead to further ethical investment decisions.

"I don't like tobacco. I've got no brief for tobacco," he said.

"The only reason for not doing it is we knew immediately we did it that you would open up all of these arguments, and so the question became, is there anything that is distinctive about tobacco?

"The answer that the board came to was no amount of tobacco can be non-harmful, whereas it doesn't believe that every amount of oil is harmful or every amount of gas is harmful or every amount of coal is harmful."